One of my heroes, Peter Drucker, died last November, just in time to produce highlights of his work and ideas at the peak of the transformation from the old social contract to his “new realities”, as illustrated by the demise of the poster child of the old contract, General Motors. GM was the model of the contract that was the post-World War II ideal—the collaboration of big business, big labor, and big government in providing sustainable dominance of American industrial leadership and steady employment for a growing workforce with collectively bargained and ever-increasing wages and benefits, supported and subsidized by Keynesian fiscal, monetary, and trade policies. This worked well during a long period of stasis in the world order, and, in “the great society” mentality, seemed to be a permanent fixture of economic life in America. But it ran head-on into Drucker’s new realities of dynamism, a deregulated and market based world of low-cost global competition, the knowledge revolution, Adam Smith’s principle of comparative advantage, and the free flow of investment capital and the resulting employment to venues where it is well treated.
There are wake up calls everywhere one looks, most prominently in the demise of the defined benefit pension plans, both in the public and private sectors, including Social Security, that no longer make sense in the new environment. Many of our larger U. S.-based companies, such as GM and its spin off Delphi, look more like bureaucratic health care and retirement benefits providers than producers of quality products, with many more beneficiaries of these plans than current employees. There is a crisis brewing here in the resolution of the unfunded liabilities of these plans that will make the savings and loan bailout of the 1980’s look mild by comparison.
Fierce efforts at protection of the old social contract abound in our public discourse among policy wonks and the political class that is so heavily vested in it. And there is no better evidence of the attitude of these elites about the painful transformation to the new realities than the comparison of the mainstream media coverage of the fortunes of GM and Wal-Mart, wherein the former is often portrayed as the loyal comrade in the preservation of the benevolence of the old contract, while the latter, the most successful model of the new contract, is portrayed as the maverick, the villain that is destroying small town America and pursuing creative destruction on the backs of exploited, under-compensated workers here and abroad.
No doubt, this transformation will be painful, but the worst we can do is attempt to protect ourselves from it, and we had best urgently move on with public policies that adapt to the new realities and advance the transformation while recognizing the human transition costs. Peter Drucker has been saying as much for many years.